What changed in this filing

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Item 1. Financial Statements

2023-05-10 compared with 2022-11-09 · 223 added, 453 removed, 1170 unchanged (37% of the section changed)

3 unchanged sentences

(In thousands, except share data;

September 30, 2022 December 31, 2021

March 31, 2023 December 31, 2022

Cash and due from banks $ 77,933 $ 96,323

34 unchanged sentences

Preferred stock, no par value:

1,000,000 shares authorized, zero issued and outstanding at September 30, 2022 and December 31, 2021

1,000,000 shares authorized, zero issued and outstanding at March 31, 2023 and December 31, 2022

Common stock, no par value:

50,000,000 shares authorized;

33,332,189 and 29,730,424 issued and outstanding at September 30, 2022 and December 31, 2021, respectively

33,195,250 and 33,331,513 issued and outstanding at March 31, 2023 and December 31, 2022, respectively

695,168 697,448

Retained earnings 564,538 542,873

Accumulated other comprehensive (loss) income, net of tax ( 222,709 ) 981

Accumulated other comprehensive loss, net of tax ( 169,461 ) ( 193,905 )

Total shareholders’ equity 1,090,245 1,046,416

5 unchanged sentences

Three months ended

September 30, Nine months ended

September 30,

2022 2021 2022 2021

Interest and dividend income:

11 unchanged sentences

Net interest income 93,336 67,924

Provision for (reversal of) credit losses 3,795 ( 1,435 ) 14,225 ( 7,755 )

Net interest income after credit loss provision (reversal) 90,311 69,668 232,851 209,511

Provision for credit losses 4,195 8,330

Net interest income after credit loss provision 89,141 59,594

Non-interest income:

1 unchanged sentence

Gain on sale of loans 206 1,246

Gain on sale of investment securities — — — —

Loss on sale of investment securities ( 164 ) —

Asset management and commission income 934 887

16 unchanged sentences

Three months ended

September 30, Nine months ended

September 30,

2022 2021 2022 2021

Net income $ 35,833 $ 20,374

Other comprehensive loss, net of tax:

Unrealized losses on available for sale securities arising during the period ( 76,740 ) ( 4,440 ) ( 223,748 ) ( 7,924 )

Other comprehensive income (loss), net of tax:

Unrealized gains (losses) on available for sale securities arising during the period 24,444 ( 78,397 )

Change in minimum pension liability — 58

Change in joint beneficiary agreements — —

Other comprehensive loss ( 76,740 ) ( 4,440 ) ( 223,690 ) ( 8,553 )

Other comprehensive income (loss) 24,444 ( 78,339 )

Comprehensive income (loss) $ 60,277 $ ( 57,965 )

5 unchanged sentences

Earnings Accumulated

Comprehensive

Income (Loss) Total

Balance at June 30, 2021 29,716,294 $ 531,038 $ 427,575 $ 8,167 $ 966,780

Net income 27,422 27,422

Other comprehensive loss ( 4,440 ) ( 4,440 )

Stock options exercised 4,000 58 58

RSU vesting 485 485

PSU vesting 252 252

RSUs released 2,689 —

PSUs released 19,272 —

Repurchase of common stock ( 27,646 ) ( 494 ) ( 620 ) ( 1,114 )

Dividends paid ($ 0.25 per share)

( 7,429 ) ( 7,429 )

Three months ended September 30, 2021 29,714,609 $ 531,339 $ 446,948 $ 3,727 $ 982,014

Balance at June 30, 2022 33,350,974 $ 696,441 $ 491,705 $ ( 145,969 ) $ 1,042,177

Net income 37,338 37,338

Other comprehensive loss ( 76,740 ) ( 76,740 )

Stock options exercised 44,000 856 856

RSU vesting 746 746

PSU vesting 223 223

RSUs released 2,752 —

PSUs released 26,338 —

Issuance of common stock — —

Repurchase of common stock ( 91,875 ) ( 1,918 ) ( 2,340 ) ( 4,258 )

Dividends paid ($ 0.30 per share)

( 10,004 ) ( 10,004 )

Three months ended September 30, 2022 33,332,189 $ 696,348 $ 516,699 $ ( 222,709 ) $ 990,338

TRICO BANCSHARES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(In thousands, except share and per share data;

Stock Retained

Earnings Accumulated

Comprehensive

Income (Loss) Total

Comprehensive Income (Loss) Total

Balance at January 1, 2022 29,730,424 $ 532,244 $ 466,959 $ 981 $ 1,000,184

5 unchanged sentences

RSUs released —

PSUs released 19,272 —

Issuance of common stock 4,105,518 173,585 173,585

Repurchase of common stock ( 1,332 ) ( 24 ) ( 32 ) ( 56 )

1 unchanged sentence

( 7,433 ) ( 7,433 )

Nine months ended September 30, 2021 29,714,609 $ 531,339 $ 446,948 $ 3,727 $ 982,014

Three months ended March 31, 2022 33,837,935 $ 706,672 $ 479,868 $ ( 77,358 ) $ 1,109,182

Balance at January 1, 2023 33,331,513 $ 697,448 $ 542,873 $ ( 193,905 ) $ 1,046,416

Net income 35,833 35,833

Other comprehensive loss ( 223,690 ) ( 223,690 )

Other comprehensive income 24,444 24,444

Stock options exercised 4,000 78 78

2 unchanged sentences

RSUs released 22,118 —

PSUs released 26,338 —

Issuance of common stock 4,105,518 173,585 173,585

Repurchase of common stock ( 162,381 ) ( 3,399 ) ( 4,196 ) ( 7,595 )

1 unchanged sentence

( 9,972 ) ( 9,972 )

Nine months ended September 30, 2022 33,332,189 $ 696,348 $ 516,699 $ ( 222,709 ) $ 990,338

Three months ended March 31, 2023 33,195,250 $ 695,168 $ 564,538 $ ( 169,461 ) $ 1,090,245

See accompanying notes to unaudited condensed consolidated financial statements.

2 unchanged sentences

(In thousands;

For the nine months ended September 30,

For the three months ended March 31,

Operating activities:

3 unchanged sentences

Amortization of intangible assets 1,656 1,228

Provision for (reversal of) credit losses on loans 13,645 ( 7,880 )

Provision for credit losses 4,195 8,330

Amortization of investment securities premium, net 174 5,618

Loss on sale of investment securities 164 —

Originations of loans for resale ( 6,281 ) ( 30,187 )

2 unchanged sentences

Change in market value of mortgage servicing rights 209 ( 274 )

Provision for losses on foreclosed assets 113 —

Gain on transfer of loans to foreclosed assets ( 224 ) ( 133 )

Gain on sale of foreclosed assets ( 22 ) ( 68 )

Operating lease expense payments ( 1,653 ) ( 1,292 )

1 unchanged sentence

Increase in cash value of life insurance ( 802 ) ( 638 )

Gain on life insurance death benefit ( 309 ) —

Loss on marketable equity securities 346 59

(Gain) loss on marketable equity securities ( 42 ) 137

Equity compensation vesting expense 1,041 812

7 unchanged sentences

Proceeds from maturities of securities held to maturity 8,842 12,894

Proceeds from sale of available for sale securities 24,160 —

Purchases of securities available for sale — ( 247,354 )

Loan origination and principal collections, net 26,558 ( 161,865 )

Loans purchased ( 21,292 ) ( 102,710 )

Proceeds from sale of other real estate owned 416 944

Proceeds from sale of premises and equipment — 6,689

Purchases of premises and equipment ( 1,213 ) ( 631 )

Proceeds from conversion of life insurance 641 —

Cash acquired from VRB, net of cash consideration paid — 426,883

Net cash used by investing activities ( 648,487 ) ( 752,929 )

Net cash from investing activities 115,252 121,914

Financing activities:

4 unchanged sentences

Exercise of stock options 78 —

Net cash from financing activities 18,584 723,695

Net cash (used by) from financing activities ( 151,102 ) 110,503

Net change in cash and cash equivalents 3,105 267,262

2 unchanged sentences

Supplemental disclosure of noncash activities:

Unrealized loss on securities available for sale $ ( 317,659 ) $ ( 11,249 )

Unrealized gain (loss) on securities available for sale $ 34,540 $ ( 111,302 )

Loans transferred to held-for-sale — 12,044

5 unchanged sentences

Cash paid for income taxes — —

Business combination (1)

(1) During the period ended March 31, 2022, the VRB acquisition included fair value tangible assets acquired of $ 1.37 billion, liabilities assumed of $ 1.28 billion, resulting in goodwill of $ 0.09 billion.

See accompanying notes to unaudited condensed consolidated financial statements.

10 unchanged sentences

The Company has five capital subsidiary business trusts (collectively, the “Capital Trusts”) that issued trust preferred securities, including two organized by the Company and three acquired with the acquisition of North Valley Bancorp.

For financial reporting purposes, the Company’s investments in the Capital Trusts of $ 1,754,000 are accounted for under the equity method and, accordingly, are not consolidated and are included in other assets on the consolidated balance sheet.

For financial reporting purposes, the Company’s investments in the Capital Trusts of $ 1.76 million are accounted for under the equity method and, accordingly, are not consolidated and are included in other assets on the consolidated balance sheet.

See the footnote 'Junior Subordinated Debt' for additional information on borrowings outstanding.

5 unchanged sentences

These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 (the “2022 Annual Report”).

The Company believes that the disclosures made herein are adequate to make the information not misleading.

The Company believes that the disclosures made are adequate to make the information not misleading.

Segment and Significant Group Concentration of Credit Risk

14 unchanged sentences

The Company measures expected credit losses on HTM debt securities on a collective basis by major security type, then further disaggregated by sector and bond rating.

Accrued interest receivable on HTM debt securities totaled was considered insignificant at September 30, 2022 and is therefore excluded from the estimate of credit losses.

The estimate of expected credit losses considers historical credit loss information that is adjusted for current condition and reasonable and supportable forecasts based on current and expected changes in credit ratings and default rates.

Accrued interest receivable on HTM debt securities was considered insignificant at March 31, 2023 and is therefore excluded from the estimate of credit losses.

The estimate of expected credit losses considers historical credit loss information that is adjusted for current conditions and reasonable and supportable forecasts based on current and expected changes in credit ratings and default rates.

Based on the implied guarantees of the U.

Government or its agencies related to certain of these investment securities, and the absence of any historical or expected losses, substantially all qualify for a zero loss

Government or its agencies related to certain of these investment securities, and the absence of any historical or expected losses, substantially all qualify for a zero loss assumption.

Management has separately evaluated its HTM investment securities from obligations of state and political subdivisions utilizing the historical loss data represented by similar securities over a period of time spanning nearly 50 years.

8 unchanged sentences

Losses are charged against the ACL when management believes the uncollectability of an available for sale debt security is confirmed or when either of the criteria regarding intent or requirement to sell is met.

No security credit losses were recognized during the three and nine month periods ended September 30, 2022 and 2021, respectively.

No security credit losses were recognized during the three month periods ended March 31, 2023 and 2022, respectively.

Loans that management has the intent and ability to hold until maturity or payoff are reported at principle amount outstanding, net of deferred loan fees and costs.

17 unchanged sentences

These macroeconomic scenarios incorporate variables that have historically been key drivers of increases and decreases in credit losses.

These variables include, but are not limited to changes in environmental conditions, such as California unemployment rates, household debt levels, changes in the effective yield of BBB US Corporate debt, and U.S.

These variables include, but are not limited to changes in environmental conditions, such as California unemployment rates, household debt levels, changes in corporate debt yields, and U.S.

gross domestic product.

A loan is considered to be collateral dependent when repayment is expected to be provided substantially through the operation or sale of the collateral.

The ACL on collateral dependent loans is measured using the fair value of the underlying collateral, adjusted for costs to sell when applicable, less the amortized cost basis of the financial asset.

If the value of underlying collateral is determined to be less than the recorded amount of the loan, a charge-off will be taken.

Loans for which the terms have been modified resulting in a concession, and for which the borrower is experiencing financial difficulties, is considered to be a TDR.

The ACL on a TDR is measured using the same method as all other portfolio loans, except when the value of a concession cannot be measured using a method other than the discounted cash flow method.

When the value of a concession is measured using the discounted cash flow method, the ACL is determined by discounting the expected future cash flows at the original interest rate of the loan.

PCD assets are assets acquired at a discount that is due, in part, to credit quality deterioration since origination.

7 unchanged sentences

Property types are predominantly office, retail, or light industrial but the portfolio also has some special use properties.

As such, the risk of loss associated with these properties is primarily driven by general economic changes or changes in regional economies and the impact of such on a tenant’s ability to pay.

As such, the risk of loss associated with these properties is primarily driven by general

economic changes or changes in regional economies and the impact of such on a tenant’s ability to pay.

Ultimately this can affect occupancy, rental rates, or both.

35 unchanged sentences

Most often, collateral includes accounts receivable, inventory, or equipment.

Collateral securing these loans may depreciate over time, may be

difficult to appraise, may be illiquid and may fluctuate in value based on the success of the business.

Collateral securing these loans may depreciate over time, may be difficult to appraise, may be illiquid and may fluctuate in value based on the success of the business.

Actual and forecast changes in gross domestic product are believed to be corollary to losses associated with these credits.

15 unchanged sentences

The reserve for unfunded commitments is maintained on the consolidated balance sheet in other liabilities.

Accounting Standards Pending Adoption

FASB issued ASU 2022-03, Fair Value Measurement (Topic 820):

Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions.

This ASU clarifies the guidance when measuring the fair value of an equity security subject to contractual restrictions that prohibit the sale of an equity security, and to introduce new disclosure requirements there within.

Amendments in this ASU are effective for the Company beginning after December 31, 2023, with early adoption permitted.

Management is evaluating the extent to which this standard will impact the consolidated financial statements.

Accounting Standards Recently Issued or Adopted

FASB issued ASU 2023-02, Investments – Equity Method and Joint Ventures (Topic 323):

Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method.

This ASU permits reporting entities to elect to account for their tax equity investments, regardless of the tax credit program from which the income tax credits are received, using the proportional amortization method if certain conditions are met.

This ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2023.

The adoption of this accounting guidance is not expected to have a material impact on the Company’s consolidated financial statements.

FASB issued ASU 2022-02, Financial Instruments — Credit Losses (Topic 326):

2 unchanged sentences

Accounting guidance for TDRs by creditors will be eliminated under this amendment, while also enhancing disclosure requirements for certain loan refinancing and restructurings by creditors when a borrower is experiencing financial difficulty.

Amendments in this ASU are effective for the Company beginning after December 31, 2022, with early adoption permitted.

Management is evaluating the extent to which this will impact the consolidated financial statements.

FASB issued ASU 2020-04, Reference Rate Reform (Topic 848):

Facilitation of the Effects of Reference Rate Reform on Financial Reporting.

This ASU provides temporary optional guidance to ease the potential burden in accounting for reference rate reform by providing optional expedients and exceptions for applying generally accepted accounting principles (GAAP) to contracts, hedging relationships, and other transactions affected if certain criteria are met.

The amendments in this Update apply only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform.

The election to apply the optional relief for existing fair value and cash flow hedge accounting relationships may be made on a hedge-by-hedge basis and across multiple reporting periods.

Amendments in this ASU are effective for the Company through December 31, 2022.

As the Company has an insignificant number of instruments that are applicable to this ASU, management has determined that no impact to the valuations of these instruments are applicable for financial reporting purposes.

Amendments in this ASU were effective for the Company beginning January 1, 2023 and applied on a prospective basis.

The adoption of this accounting guidance did not have a material impact on the Company's consolidated financial statements.

Note 2 - Business Combinations

On March 25, 2022, the Company completed its acquisition of Valley Republic Bancorp (VRB), including the merger of Valley Republic Bank into Tri Counties Bank, with Tri Counties Bank as the surviving entity, in accordance with the terms of the merger agreement dated as of July 27, 2021.

On March 25, 2022, the Company completed its acquisition of Valley Republic Bancorp, including the merger of Valley Republic Bank into Tri Counties Bank, with Tri Counties Bank as the surviving entity, in accordance with the terms of the merger agreement dated as of July 27, 2021.

The cash and stock transaction was valued at approximately $ 174.0 million in aggregate, based on TriCo's closing stock price of $ 42.48 on March 25, 2022.

Under the terms of the merger agreement, the Company issued approximately 4.1 million shares, in addition to approximately $ 431,000 in cash paid out for settlement of stock option awards at VRB.

VRB was headquartered in Bakersfield, California, and had four branch locations at acquisition in and around Bakersfield, which all now operate as branches for Tri Counties Bank, and a loan production office in Fresno, California.

The Company's overlapping Bakersfield branch was consolidated into the acquired VRB branch during the quarter ended June 30, 2022, and the Company anticipates the VRB loan production office in Fresno will be consolidated with the nearby legacy loan production office during the third quarter of 2022.

The acquisition of VRB has been accounted for as a business combination.

We recorded the fair values based on the valuations available as of reporting date.

In accordance with business combination accounting guidance, we will continue to evaluate these fair values for up to one year following the merger date of March 25, 2022.

While management believes the information available and presented below provide a reasonable basis for estimating fair value, we may obtain additional information and evidence during the measurement period that could result in changes to the estimated fair value amounts.

Valuations subject to change include, but are not limited to, loans and leases, deposits, deferred tax items, and certain other assets and liabilities.

Under the terms of the merger agreement, the Company issued approximately 4.1 million shares, in addition to approximately $ 0.4 million in cash paid out for settlement of stock option awards at VRB.

The following table summarizes the consideration paid for VRB and the amounts of assets acquired and liabilities assumed that were recorded at the acquisition date (in thousands):

Valley Republic Bancorp

Fair Value as of

March 25, 2022

22 unchanged sentences

The amortized cost, estimated fair values and allowance for credit losses of investments in debt securities are summarized in the following tables:

September 30, 2022

March 31, 2023

(in thousands) Amortized

Losses Estimated

Losses Allowance for Credit Losses Estimated

Debt Securities Available for Sale

13 unchanged sentences

(in thousands) Amortized

Losses Estimated

Losses Allowance for Credit Losses Estimated

Debt Securities Available for Sale

11 unchanged sentences

Total debt securities held to maturity $ 160,983 $ 15 $ ( 11,060 ) $ — $ 149,938

There were no sales of investment securities during the three and nine months ended September 30, 2022 and 2021, respectively.

Investment securities with an aggregate carrying value of $ 578,794,000 and $ 423,892,000 at September 30, 2022 and December 31, 2021, respectively, were pledged as collateral for specific borrowings, lines of credit or local agency deposits.

The amortized cost and estimated fair value of debt securities at September 30, 2022 by contractual maturity are shown below.

Proceeds from the sale of investment securities totaled $ 24.2 million for the three months ended March 31, 2023, resulting in gross realized losses of $ 0.2 million.

There were no sales of investment securities during the three months ended March 31, 2022.

Investment securities with an aggregate carrying value of $ 648.4 million and $ 595.8 million at March 31, 2023 and December 31, 2022, respectively, were pledged as collateral for specific borrowings, lines of credit or local agency deposits.

The amortized cost and estimated fair value of debt securities at March 31, 2023 by contractual maturity are shown below.

Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

At September 30, 2022, obligations of U.S.

government corporations and agencies with a cost basis totaling $ 1,570,291,000 consist almost entirely of residential real estate mortgage-backed securities whose contractual maturity, or principal repayment, will follow the repayment of the underlying mortgages.

At March 31, 2023, obligations of U.S.

government corporations and agencies with a cost basis totaling $ 1,502.5 billion consist almost entirely of residential real estate mortgage-backed securities whose contractual maturity, or principal repayment, will follow the repayment of the underlying mortgages.

For purposes of the following table, the entire outstanding balance of these mortgage-backed securities issued by U.S.

government corporations and agencies is categorized based on final maturity date.

At September 30, 2022, the Company estimates the average remaining life of these mortgage-backed securities issued by U.S.

At March 31, 2023, the Company estimates the average remaining life of these mortgage-backed securities issued by U.S.

government corporations and agencies to be approximately 6.53 years.

Average remaining life is defined as the time span after which the principal balance has been reduced by half.

As of September 30, 2022, the contractual final maturity for available for sale and held to maturity investment securities is as follows:

As of March 31, 2023, the contractual final maturity for available for sale and held to maturity investment securities is as follows:

Debt Securities Available for Sale Held to Maturity

9 unchanged sentences

Gross unrealized losses on debt securities and the fair value of the related securities, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, were as follows:

September 30, 2022:

March 31, 2023:

Less than 12 months 12 months or more Total

26 unchanged sentences

Obligations of states and political subdivisions 219,532 ( 26,904 ) 43,282 ( 12,917 ) 262,814 ( 39,821 )

Corporate bonds 5,751 ( 413 ) — — 5,751 ( 413 )

Asset backed securities 231,703 ( 4,955 ) 205,329 ( 10,238 ) 437,032 ( 15,193 )

1 unchanged sentence

Total debt securities available for sale $ 1,185,676 ( 97,101 ) $ 1,218,843 $ ( 193,869 ) $ 2,404,519 $ ( 290,970 )

Debt Securities Held to Maturity

Obligations of U.S.

government agencies $ 143,577 $ ( 11,013 ) $ — $ — $ 143,577 $ ( 11,013 )

Obligations of states and political subdivisions 4,530 ( 47 ) — — 4,530 ( 47 )

Total debt securities held to maturity $ 148,107 $ ( 11,060 ) $ — $ — $ 148,107 $ ( 11,060 )

Obligations of U.S.

government agencies:

The unrealized losses on investments in obligations of U.S.

4 unchanged sentences

Because management believes the decline in fair value is attributable to changes in interest rates and not credit quality, and because the Company does not intend to sell and more likely than not will not be required to sell, there is no impairment on these securities and there has been no allowance for credit losses recorded.

At September 30, 2022, 170 debt securities representing obligations of U.S.

At March 31, 2023, 261 debt securities representing obligations of U.S.

government agencies had unrealized losses with aggregate depreciation of 10.97 % from the Company’s amortized cost basis.

2 unchanged sentences

It is expected that the securities would not be settled at a price less than the amortized cost of the investment.

At September 30, 2022, 218 debt securities representing obligations of states and political subdivisions had unrealized losses with aggregate depreciation of 15.02 % from the Company’s amortized cost basis.

At March 31, 2023, 159 debt securities representing obligations of states and political subdivisions had unrealized losses with aggregate depreciation of 11.07 % from the Company’s amortized cost basis.

Corporate bonds:

1 unchanged sentence

It is expected that the securities would not be settled at a price less than the amortized cost of the investment.

At September 30, 2022, 6 debt securities representing corporate bonds had unrealized losses with aggregate depreciation of 4.92 % from the Company’s amortized cost basis.

At March 31, 2023, 6 debt securities representing corporate bonds had unrealized losses with aggregate depreciation of 6.93 % from the Company’s amortized cost basis.

Asset backed securities:

The unrealized losses on investments in asset backed securities were caused by increases in required yields by investors for these types of securities.

At the time of purchase, each of these securities was rated AA or AAA and through September 30,

At the time of purchase, each of these securities was rated AA or AAA and through March 31, 2023

has not experienced any deterioration in credit rating.

At September 30, 2022, 46 asset backed securities had unrealized losses with aggregate depreciation of 2.98 % from the Company’s amortized cost basis.

At March 31, 2023, 47 asset backed securities had unrealized losses with aggregate depreciation of 2.97 % from the Company’s amortized cost basis.

The Company continues to monitor these securities for changes in credit rating or other indications of credit deterioration.

Non-agency collateralized mortgage obligations:

The unrealized losses on investments in non-agency collateralized mortgage obligations were caused by increases in required yields by investors in these types of securities.

The unrealized losses on investments in asset backed securities were caused by increases in required yields by investors in these types of securities.

It is expected that the securities would not be settled at a price less than the amortized cost of the investment.

At September 30, 2022, 22 debt securities representing corporate bonds had unrealized losses with aggregate depreciation of 10.95 % from the Company’s amortized cost basis.

At March 31, 2023, 22 asset backed securities had unrealized losses with aggregate depreciation of 11.04 % from the Company’s amortized cost basis.

The Company monitors credit quality of debt securities held-to-maturity through the use of credit rating.

1 unchanged sentence

The following table summarizes the amortized cost of debt securities held-to-maturity at the dates indicated, aggregated by credit quality indicator:

September 30, 2022 December 31, 2021

March 31, 2023 December 31, 2022

(in thousands)

AAA/AA/A BBB/BB/B AAA/AA/A BBB/BB/B

(In thousands) (In thousands)

Debt Securities Held to Maturity

Obligations of U.S.

3 unchanged sentences

Note 4 – Loans

A summary of loan balances follows:

(in thousands) September 30, 2022 December 31, 2021

A summary of loan balances at amortized cost are as follows:

(in thousands) March 31, 2023 December 31, 2022

Commercial real estate:

18 unchanged sentences

Allowance for credit losses on loans $ ( 108,407 ) $ ( 105,680 )

In March 2020 (Round 1) and subsequently in December 2020 (Round 2), the Small Business Administration ("SBA") Paycheck

Protection Program ("PPP") was created to help small businesses keep workers employed during the COVID-19 crisis.

Bank, through its online portal, facilitated the ability for borrowers to open a new deposit account and submit PPP applications during

the entirety of the Programs.

The SBA ended PPP and did not accept new borrowing applications, effective May 31, 2021.

PPP loan balances included in commercial and industrial loan totals above were $ 1,942,000 and $ 61,147,000 , net of approximately $ 27,000 and $ 2,164,000 in deferred fee income as of September 30, 2022 and December 31, 2021, respectively.

During the three months ended September 30, 2022, the Company recognized $ 291,000 in fees on PPP loans as compared with $ 872,000 and $ 2,984,000 for the three months ended June 30, 2022 and September 30, 2021, respectively.

Based on the payment guarantee provided by the SBA as well as the expected short-term duration of the PPP loans acquired from VRB, the fair value of these loans approximates the principal balance outstanding as of the merger date, and therefore, no purchase discount was recorded.

Note 5 – Allowance for Credit Losses

For the periods indicated, the following tables summarize the activity in the allowance for credit losses on loans which is recorded as a contra asset, and the reserve for unfunded commitments which is recorded on the balance sheet within other liabilities:

Allowance for credit losses – Three months ended September 30, 2022

Allowance for credit losses – Three months ended March 31, 2023

(in thousands) Beginning

17 unchanged sentences

Total $ 109,995 $ ( 1,758 ) $ 170 $ 4,195 $ 112,602

Allowance for credit losses – Nine months ended September 30, 2022

(in thousands) Beginning

Balance ACL on PCD Loans Charge-offs Recoveries Provision (benefit) Ending

Commercial real estate:

CRE non-owner occupied $ 25,739 $ 746 $ — $ 1 $ 2,758 $ 29,244

CRE owner occupied 10,691 63 — 2 2,769 13,525

Multifamily 12,395 — — — 354 12,749

Farmland 2,315 764 ( 294 ) — 337 3,122

Total commercial real estate loans 51,140 1,573 ( 294 ) 3 6,218 58,640

SFR 1-4 1st DT liens 10,723 144 — 79 ( 275 ) 10,671

SFR HELOCs and junior liens 10,510 — — 426 447 11,383

Other 2,241 — ( 470 ) 200 ( 93 ) 1,878

Total consumer loans 23,474 144 ( 470 ) 705 79 23,932

Commercial and industrial 3,862 81 ( 647 ) 1,130 5,974 10,400

Construction 5,667 201 — — 264 6,132

Agriculture production 1,215 38 — 3 1,112 2,368

Leases 18 — — — ( 2 ) 16

Allowance for credit losses on loans $ 85,376 $ 2,037 $ ( 1,411 ) $ 1,841 $ 13,645 $ 101,488

Reserve for unfunded commitments 3,790 — — — 580 4,370

Total $ 89,166 $ 2,037 $ ( 1,411 ) $ 1,841 $ 14,225 $ 105,858

The allowance for credit losses (ACL) was $ 101,488,000 as of September 30, 2022, a net increase of $ 3,544,000 over the immediately preceding quarter.

The provision for credit losses of $ 3,500,000 during the quarter was the net effect of increases in required reserves due to loan portfolio growth and changes in individually analyzed credits, which increased the provision need by approximately $ 3,218,000 and $ 1,356,000 , respectively, while net decreases in qualitative factors and improvement in overall portfolio credit quality reduced the provisioning need by approximately $ 1,030,000 .

In addition to the aforementioned quarterly increase, the provision for credit losses of $ 13,645,000 during the nine months ended September 30, 2022 was comprised of $ 10,820,000 in association with the loans acquired from Valley Republic Bank in the first quarter of 2022, and a net provision for credit losses of $ 2,825,000 associated with organic loan portfolio growth and the net changes in quantitative and qualitative factors associated with overall borrower performance.

Net recoveries for the three and nine months ended September 30, 2022 were approximately $ 44,000 and $ 430,000 , respectively while during the same three and nine month periods of 2021, the Company recorded $ 261,000 in net charge-offs and $ 339,000 in recoveries, respectively.

In determining the allowance for credit losses, accruing loans with similar risk characteristics are generally evaluated collectively.

4 unchanged sentences

This forecast data continues to evolve and included improving shifts in the magnitude of changes for both the unemployment and GDP factors leading up to the balance sheet date, particularly CA unemployment trends.

Inflation remains elevated from continued disruptions in the supply chain and volatile energy prices Despite the expected continued benefit to the net interest income of the Company from the elevated rate environment, Management notes the rapid intervals of rate increases by the Federal Reserve and flattening or inversion of the yield curve, have boosted expectations of the US entering a recession within 12 months and has led to the lowest levels of consumer sentiment in decades.

As compared to historical norms, inflation remains elevated from continued disruptions in the supply chain, wage pressures, and higher living costs such as housing and food prices Despite the expected continued benefit to the net interest income of the Company from the elevated rate environment, Management notes the rapid intervals of rate increases by the Federal Reserve and flattening or inversion of the yield curve, have boosted expectations of the US entering a recession within 12 months.

As a result, management continues to believe that certain credit weakness are likely present in the overall economy and that it is appropriate to cautiously maintain a reserve level that incorporates such risk factors.

11 unchanged sentences

(in thousands) Beginning

Balance Charge-offs Recoveries Provision

Balance ACL of PCD Loans Charge-offs Recoveries Provision

(benefit) Ending Balance

16 unchanged sentences

Total $ 89,166 $ 2,037 $ ( 1,585 ) $ 1,907 $ 18,470 $ 109,995

Allowance for credit losses – Three months ended September 30, 2021

(in thousands) Beginning

Balance Charge-offs Recoveries Provision Ending Balance

Commercial real estate:

CRE non-owner occupied $ 26,028 $ — $ 10 $ ( 817 ) $ 25,221

CRE owner occupied 10,463 ( 18 ) 793 ( 508 ) 10,730

Multifamily 13,196 — — ( 320 ) 12,876

Farmland 1,950 ( 126 ) — 78 1,902

Total commercial real estate loans 51,637 ( 144 ) 803 ( 1,567 ) 50,729

SFR 1-4 1st DT liens 10,629 ( 145 ) 1 133 10,618

SFR HELOCs and junior liens 10,701 — 63 ( 333 ) 10,431

Other 2,620 ( 181 ) 97 ( 94 ) 2,442

Total consumer loans 23,950 ( 326 ) 161 ( 294 ) 23,491

Commercial and industrial 4,511 ( 1,112 ) 355 ( 327 ) 3,427

Construction 4,951 — — 577 5,528

Agriculture production 1,007 — 2 110 1,119

Leases 6 — — 6 12

Allowance for credit losses on loans $ 86,062 $ ( 1,582 ) $ 1,321 $ ( 1,495 ) $ 84,306

Reserve for unfunded commitments 3,465 — — 60 3,525

Total $ 89,527 $ ( 1,582 ) $ 1,321 $ ( 1,435 ) $ 87,831

Allowance for credit losses – Nine months ended September 30, 2021

Allowance for credit losses – Three months ended March 31, 2022

(in thousands) Beginning

Balance Charge-offs Recoveries Provision Ending Balance

Balance ACL of PCD Loans Charge-offs Recoveries Provision Ending Balance

Commercial real estate:

17 unchanged sentences

The Company analyzes loans individually to classify the loans as to credit risk and grading.

This analysis is performed annually for all outstanding balances greater than $ 1,000,000 and non-homogeneous loans, such as commercial real estate loans, unless other indicators, such as delinquency, trigger more frequent evaluation.

Loans below the $ 1,000,000 threshold and homogenous in nature are evaluated as needed for proper grading based on delinquency and borrower credit scores.

This analysis is performed annually for all outstanding balances greater than $ 1 million and non-homogeneous loans, such as commercial real

estate loans, unless other indicators, such as delinquency, trigger more frequent evaluation.

Loans below the $ 1 million threshold and homogenous in nature are evaluated as needed for proper grading based on delinquency and borrower credit scores.

The Company utilizes a risk grading system to assign a risk grade to each of its loans.

19 unchanged sentences

Based on the most recent analysis performed, the risk category of loans by class of loans is as follows for the period indicated:

Term Loans Amortized Cost Basis by Origination Year – As of September 30, 2022

Term Loans Amortized Cost Basis by Origination Year – As of March 31, 2023

(in thousands) 2023 2022 2021 2020 2019 Prior Revolving Loans Amortized Cost Basis Revolving Loans Converted to Term Total

5 unchanged sentences

Doubtful/Loss — — — — — — — — —

Total CRE non-owner occupied risk ratings $ 314,435 $ 309,932 $ 152,321 $ 233,831 $ 153,610 $ 787,991 $ 110,286 $ — $ 2,062,406

Total $ 29,991 $ 412,225 $ 301,615 $ 152,929 $ 246,035 $ 895,937 $ 122,327 $ — $ 2,161,059

Current period gross write-offs $ — $ — $ — $ — $ — $ — $ — $ — $ —

Commercial real estate:

4 unchanged sentences

Doubtful/Loss — — — — — — — — —

Total CRE owner occupied risk ratings $ 190,576 $ 211,053 $ 132,912 $ 69,242 $ 51,900 $ 277,934 $ 35,971 $ — $ 969,588

Total $ 17,630 $ 204,626 $ 211,712 $ 127,305 $ 65,924 $ 309,492 $ 34,521 $ — $ 971,210

Current period gross write-offs $ — $ — $ — $ — $ — $ — $ — $ — $ —

Term Loans Amortized Cost Basis by Origination Year – As of March 31, 2023

(in thousands) 2023 2022 2021 2020 2019 Prior Revolving Loans Amortized Cost Basis Revolving Loans Converted to Term Total

Commercial real estate:

4 unchanged sentences

Doubtful/Loss — — — — — — — — —

Total multifamily loans $ 153,679 $ 285,798 $ 97,578 $ 88,771 $ 105,714 $ 166,093 $ 29,924 $ — $ 927,557

Total $ 2,849 $ 178,177 $ 289,301 $ 95,352 $ 108,051 $ 239,439 $ 33,524 $ — $ 946,693

Current period gross write-offs $ — $ — $ — $ — $ — $ — $ — $ — $ —

Commercial real estate:

4 unchanged sentences

Doubtful/Loss — — — — — — — — —

Total farmland loans $ 45,305 $ 54,690 $ 17,514 $ 25,330 $ 16,766 $ 47,980 $ 71,794 $ — $ 279,379

Total $ 14,429 $ 49,493 $ 53,921 $ 17,105 $ 23,037 $ 61,147 $ 55,865 $ — $ 274,997

Current period gross write-offs $ — $ — $ — $ — $ — $ — $ — $ — $ —

Consumer loans:

4 unchanged sentences

Doubtful/Loss — — — — — — — — —

Total SFR 1st DT liens $ 154,671 $ 270,449 $ 136,710 $ 34,104 $ 34,554 $ 130,233 $ 10 $ 4,298 $ 765,029

Term Loans Amortized Cost Basis by Origination Year – As of September 30, 2022

(in thousands) 2022 2021 2020 2019 2018 Prior Revolving Loans Amortized Cost Basis Revolving Loans Converted to Term Total

Total $ 15,719 $ 194,189 $ 272,843 $ 131,064 $ 33,035 $ 152,345 $ 8 $ 4,204 $ 803,407

Current period gross write-offs $ — $ — $ — $ — $ — $ — $ — $ — $ —

Consumer loans:

4 unchanged sentences

Doubtful/Loss — — — — — — — — —

Total SFR HELOCs and Junior Liens $ 420 $ — $ — $ — $ — $ 136 $ 384,206 $ 9,374 $ 394,136

Total $ 360 $ — $ — $ — $ — $ 119 $ 366,611 $ 8,501 $ 375,591

Current period gross write-offs $ — $ — $ — $ — $ — $ — $ — $ 43 $ 43

Consumer loans:

4 unchanged sentences

Doubtful/Loss — — — — — — — — —

Total other consumer loans $ 11,540 $ 14,000 $ 11,321 $ 12,163 $ 5,842 $ 2,327 $ 939 $ — $ 58,132

Total $ 4,305 $ 11,888 $ 12,057 $ 9,482 $ 9,880 $ 6,561 $ 626 $ — $ 54,799

Current period gross write-offs $ 96 $ 6 $ — $ — $ 29 $ 7 $ 3 $ — $ 141

Term Loans Amortized Cost Basis by Origination Year – As of March 31, 2023

(in thousands) 2023 2022 2021 2020 2019 Prior Revolving Loans Amortized Cost Basis Revolving Loans Converted to Term Total

Commercial and industrial loans:

4 unchanged sentences

Doubtful/Loss — — — — — — — — —

Total commercial and industrial loans $ 119,030 $ 68,551 $ 25,552 $ 27,429 $ 9,361 $ 7,744 $ 276,430 $ 863 $ 534,960

Total $ 34,798 $ 111,780 $ 66,419 $ 19,056 $ 20,317 $ 12,428 $ 287,798 $ 502 $ 553,098

Current period gross write-offs $ 6 $ — $ — $ 1,550 $ — $ — $ — $ 18 $ 1,574

Construction loans:

4 unchanged sentences

Doubtful/Loss — — — — — — — — —

Total construction loans $ 43,353 $ 85,108 $ 52,726 $ 54,425 $ 2,642 $ 5,317 $ — $ — $ 243,571

Total $ 10,823 $ 93,294 $ 67,911 $ 41,776 $ 5,362 $ 6,830 $ — $ — $ 225,996

Current period gross write-offs $ — $ — $ — $ — $ — $ — $ — $ — $ —

Agriculture production loans:

4 unchanged sentences

Doubtful/Loss — — — — — — — — —

Total agriculture production loans $ 1,837 $ 2,635 $ 3,092 $ 1,204 $ 9,051 $ 1,214 $ 52,566 $ — $ 71,599

Term Loans Amortized Cost Basis by Origination Year – As of September 30, 2022

(in thousands) 2022 2021 2020 2019 2018 Prior Revolving Loans Amortized Cost Basis Revolving Loans Converted to Term Total

Total $ 50 $ 3,140 $ 2,567 $ 1,003 $ 929 $ 9,858 $ 29,515 $ — $ 47,062

Current period gross write-offs $ — $ — $ — $ — $ — $ — $ — $ — $ —

Lease risk ratings

3 unchanged sentences

Doubtful/Loss — — — — — — — — —

Total leases $ 7,933 $ — $ — $ — $ — $ — $ — $ — $ 7,933

Total $ 8,509 $ — $ — $ — $ — $ — $ — $ — $ 8,509

Current period gross write-offs $ — $ — $ — $ — $ — $ — $ — $ — $ —

Total loans outstanding:

3 unchanged sentences

Doubtful/Loss — — — — — — — — —

Total loans outstanding $ 1,042,779 $ 1,302,216 $ 629,726 $ 546,499 $ 389,440 $ 1,426,969 $ 962,126 $ 14,535 $ 6,314,290

Total $ 139,463 $ 1,258,812 $ 1,278,346 $ 595,072 $ 512,570 $ 1,694,156 $ 930,795 $ 13,207 $ 6,422,421

Current period gross write-offs $ 102 $ 6 $ — $ 1,550 $ 29 $ 7 $ 3 $ 61 $ 1,758

Term Loans Amortized Cost Basis by Origination Year – As of December 31, 2022

6 unchanged sentences

Doubtful/Loss — — — — — — — — —

Total CRE non-owner occupied risk ratings $ 275,305 $ 127,299 $ 208,150 $ 134,827 $ 229,710 $ 576,219 $ 51,631 $ — $ 1,603,141

Total $ 399,910 $ 305,500 $ 153,728 $ 241,692 $ 148,901 $ 774,854 $ 125,140 $ — $ 2,149,725

Commercial real estate:

4 unchanged sentences

Doubtful/Loss — — — — — — — — —

Total CRE owner occupied risk ratings $ 193,607 $ 104,571 $ 64,837 $ 50,224 $ 58,818 $ 211,505 $ 22,745 $ — $ 706,307

Total $ 213,445 $ 214,083 $ 126,412 $ 66,868 $ 50,858 $ 268,762 $ 44,379 $ — $ 984,807

Commercial real estate:

4 unchanged sentences

Doubtful/Loss — — — — — — — — —

Total multifamily loans $ 278,942 $ 100,752 $ 76,127 $ 109,374 $ 85,932 $ 147,137 $ 25,236 $ — $ 823,500

Total $ 159,318 $ 290,170 $ 96,937 $ 108,586 $ 106,287 $ 154,250 $ 28,989 $ — $ 944,537

Commercial real estate:

4 unchanged sentences

Doubtful/Loss — — — — — — — — —

Total farmland loans $ 43,601 $ 17,399 $ 23,118 $ 15,119 $ 10,904 $ 22,345 $ 40,620 $ — $ 173,106

Total $ 50,206 $ 54,058 $ 18,757 $ 24,354 $ 15,544 $ 45,613 $ 71,482 $ — $ 280,014

Consumer loans:

4 unchanged sentences

Doubtful/Loss — — — — — — — — —

Total SFR 1st DT liens $ 269,846 $ 159,860 $ 40,947 $ 35,251 $ 36,869 $ 119,753 $ — $ 4,434 $ 666,960

Total $ 194,933 $ 266,574 $ 133,453 $ 33,677 $ 32,826 $ 124,844 $ 8 $ 4,034 $ 790,349

Term Loans Amortized Cost Basis by Origination Year – As of December 31, 2022

6 unchanged sentences

Doubtful/Loss — — — — — — — — —

Total SFR HELOCs and Junior Liens $ 494 $ — $ — $ — $ — $ 240 $ 325,200 $ 11,579 $ 337,513

Total $ 505 $ — $ — $ — $ — $ 127 $ 383,853 $ 9,181 $ 393,666

Consumer loans:

4 unchanged sentences

Doubtful/Loss — — — — — — — — —

Total other consumer loans $ 20,920 $ 16,038 $ 17,569 $ 8,343 $ 2,302 $ 1,215 $ 691 $ — $ 67,078

Total $ 14,070 $ 13,008 $ 10,330 $ 10,877 $ 5,401 $ 2,073 $ 969 $ — $ 56,728

Commercial and industrial loans:

4 unchanged sentences

Doubtful/Loss — — — — — — — — —

Total commercial and industrial loans $ 92,972 $ 20,350 $ 27,550 $ 11,639 $ 7,230 $ 7,268 $ 91,306 $ 1,040 $ 259,355

Total $ 130,035 $ 66,247 $ 22,946 $ 23,194 $ 7,799 $ 6,430 $ 312,686 $ 584 $ 569,921

Construction loans:

4 unchanged sentences

Doubtful/Loss — — — — — — — — —

Total construction loans $ 68,993 $ 80,039 $ 58,383 $ 4,849 $ 1,716 $ 8,301 $ — $ — $ 222,281

Total $ 72,840 $ 72,308 $ 43,409 $ 15,815 $ 2,159 $ 5,029 $ — $ — $ 211,560

Agriculture production loans:

4 unchanged sentences

Doubtful/Loss — — — — — — — — —

Total agriculture production loans $ 2,068 $ 878 $ 1,393 $ 951 $ 940 $ 895 $ 43,686 $ — $ 50,811

Total $ 3,414 $ 2,777 $ 1,149 $ 1,104 $ 8,992 $ 1,089 $ 42,889 $ — $ 61,414

Term Loans Amortized Cost Basis by Origination Year – As of December 31, 2022

(in thousands) 2022 2021 2020 2019 2018 Prior Revolving Loans Amortized Cost Basis Revolving Loans Converted to Term Total

Lease risk ratings

Pass $ 7,726 $ — $ — $ — $ — $ — $ — $ — $ 7,726

2 unchanged sentences

Doubtful/Loss — — — — — — — — —

Total leases $ 6,572 $ — $ — $ — $ — $ — $ — $ — $ 6,572

Total $ 7,726 $ — $ — $ — $ — $ — $ — $ — $ 7,726

Total loans outstanding:

3 unchanged sentences

Doubtful/Loss — — — — — — — — —

Total loans outstanding $ 1,253,320 $ 627,186 $ 518,074 $ 370,577 $ 434,421 $ 1,094,878 $ 601,115 $ 17,053 $ 4,916,624

Total $ 1,246,402 $ 1,284,725 $ 607,121 $ 526,167 $ 378,767 $ 1,383,071 $ 1,010,395 $ 13,799 $ 6,450,447

The following table shows the ending balance of current and past due originated loans by loan category as of the date indicated:

Analysis of Past Due Loans - As of September 30, 2022

Analysis of Past Due Loans - As of March 31, 2023

(in thousands) 30-59 days 60-89 days > 90 days Total Past

35 unchanged sentences

Non Accrual Loans

As of September 30, 2022 As of December 31, 2021

As of March 31, 2023 As of December 31, 2022

(in thousands) Non accrual with no allowance for credit losses Total non accrual Past due 90 days or more and still accruing Non accrual with no allowance for credit losses Total non accrual Past due 90 days or more and still accruing

16 unchanged sentences

Total, net $ 13,841 $ 15,607 $ 189 $ 18,125 $ 21,096 $ —

Interest income on non accrual loans that would have been recognized during the three months ended September 30, 2022 and 2021, if all such loans had been current in accordance with their original terms, totaled $ 497,000 and $ 412,000 , respectively.

Interest income actually recognized on these originated loans during the three months ended September 30, 2022 and 2021 was $ 272,000 and $ 117,000 , respectively.

Interest income on non accrual loans that would have been recognized during the nine months ended September 30, 2022 and 2021, if all such loans had been current in accordance with their original terms, totaled $ 901,000 and $ 1,472,000 , respectively.

Interest income actually recognized on these originated loans during the nine months ended September 30, 2022 and 2021 was $ 285,000 and $ 293,000 , respectively.

Interest income on non accrual loans that would have been recognized during the three months ended March 31, 2023 and 2022, if all such loans had been current in accordance with their original terms, totaled $ 0.32 million and $ 0.17 million, respectively.

Interest income actually recognized on these originated loans during the three months ended March 31, 2023 and 2022 was $ 17 thousand and $ 13 thousand, respectively.

The following tables present the amortized cost basis of collateral dependent loans by class of loans as of the following periods:

As of September 30, 2022

As of March 31, 2023

(in thousands) Retail Office Warehouse Other Multifamily Farmland SFR-1st Deed SFR-2nd Deed Automobile/Truck A/R and Inventory Equipment Total

31 unchanged sentences

Total $ 1,325 $ 173 $ 1,103 $ 6,334 $ 125 $ 1,772 $ 5,996 $ 1,121 $ 61 $ 1,596 $ 1,329 $ 20,935

The following tables show certain information regarding TDRs that occurred during the periods indicated:

TDR information for the three months ended September 30, 2022

(dollars in thousands) Number Pre-mod

balance Post-mod

balance Financial

impact due to

provision Number that

defaulted during

the period Recorded

investment of

defaulted during

the period Financial impact

taken as charge-

offs or additional

Commercial real estate:

CRE non-owner occupied — $ — $ — $ — — $ — $ —

CRE owner occupied — — — — — — —

Multifamily — — — — — — —

Farmland — — — — — — —

Total commercial real estate loans — — — — — — —

SFR 1-4 1st DT liens — — — — — — —

SFR HELOCs and junior liens — — — — — — —

Other — — — — — — —

Total consumer loans — — — — — — —

Commercial and industrial — — — — — — —

Construction — — — — — — —

Agriculture production 4 7,210 7,210 — — — —

Leases — — — — — — —

Total 4 $ 7,210 $ 7,210 $ — — $ — $ —

TDR information for the three months ended September 30, 2021

(dollars in thousands) Number Pre-mod

balance Post-mod

balance Financial

impact due to

provision Number that

defaulted during

the period Recorded

investment of

defaulted during

the period Financial impact

taken as charge-

offs or additional

Commercial real estate:

CRE non-owner occupied 3 $ 3,943 $ 3,938 $ — — $ — $ —

CRE owner occupied — — — — — — —

Multifamily — — — — — — —

Farmland 1 50 50 50 — — —

Total commercial real estate loans 4 3,993 3,988 50 — — —

SFR 1-4 1st DT liens — — — — — — —

SFR HELOCs and junior liens — — — — — — —

Other — — — — — — —

Total consumer loans — — — — — — —

Commercial and industrial 2 160 159 106 — — —

Construction — — — — — — —

Agriculture production — — — — — — —

Leases — — — — — — —

Total 6 $ 4,153 $ 4,147 $ 156 — $ — $ —

TDR Information for the nine months ended September 30, 2022

(dollars in thousands) Number Pre-mod

balance Post-mod

balance Financial

impact due to

provision Number that

defaulted during

the period Recorded

investment of

defaulted during

the period Financial impact

taken as charge-

offs or additional

Modifications to borrowers experiencing financial difficulty may include interest rate reductions, principal or interest forgiveness, forbearances, term extensions, and other actions intended to minimize economic loss and to avoid foreclosure or repossession of collateral.

The following tables show the amortized cost basis of loans that were both experiencing financial difficulty and modified during the periods presented.

The percentage of the amortized cost basis of loans that were modified to borrowers in financial distress as compared to the amortized cost basis of each class of financing receivables is also presented below.

For the three months ended March 31, 2023

(in thousands) Payment Delay/Term Extension Total % of Loans Outstanding

Commercial real estate:

2 unchanged sentences

Multifamily — —

Farmland 3 1,228 1,440 — — — —

Total commercial real estate loans — —

1 unchanged sentence

SFR HELOCs and junior liens — —

Other — — — — — — —

Total consumer loans — —

2 unchanged sentences

Agriculture production — —

Leases — — — — — — —

Total $ 177 0.03 %

TDR Information for the nine months ended September 30, 2021

(dollars in thousands) Number Pre-mod

balance Post-mod

balance Financial

impact due to

provision Number that

defaulted during

the period Recorded

investment of

defaulted during

the period Financial impact

taken as charge-

offs or additional

Commercial real estate:

CRE non-owner occupied — $ 4,966 $ 4,956 $ 1,020 — $ — $ —

CRE owner occupied — 740 742 742 — — —

Multifamily — — — — — — —

Farmland — 50 50 50 — 847 —

Total commercial real estate loans — 5,756 5,748 1,812 — 847 —

SFR 1-4 1st DT liens — — — — — — —

SFR HELOCs and junior liens — — — — — — —

Other — — — — — — —

Total consumer loans — — — — — — —

The following table presents the financial effect of loan modifications made to borrowers experiencing financial difficulty during the quarter ended March 31, 2023.

Weighted Average Months Term Extension

Commercial and industrial 12

Construction — — — — — — —

Agriculture production — — — — — — —

Leases — — — — — — —

Total — $ 8,232 $ 8,217 $ 2,521 — $ 1,107 $ ( 5 )

The Company also modified the terms of select loans in an effort to assist borrowers that were not related to the COVID-19 pandemic.

If the borrower was experiencing financial difficulty and a concession was granted, the Company considered such modifications as troubled debt restructurings.

Modifications classified as TDRs can include one or a combination of the following:

rate modifications, term extensions, interest only modifications, either temporary or long-term, payment modifications, and collateral substitutions/additions.

The objective of the modifications was to increase loan repayments by customers and thereby reduce net charge-offs.

The modified loans are included in

impaired loans for purposes of determining the level of the allowance for credit losses.

For all new TDRs, an impairment analysis is conducted.

If the loan is determined to be collateral dependent, any additional amount of impairment will be calculated based on the difference between estimated collectible value and the current carrying balance of the loan.

This difference could result in an increased provision and is typically charged off.

If the asset is determined not to be collateral dependent, the impairment is measured on the net present value difference between the expected cash flows of the restructured loan and the cash flows which would have been received under the original terms.

The effect of this could result in a requirement for additional provision to the reserve.

The effect of these required provisions for the period are indicated above.

Typically if a TDR defaults during the period, the loan is then considered collateral dependent and, if it was not already considered collateral dependent, an appropriate provision will be reserved or charge will be taken.

The additional provisions required resulting from default of previously modified TDR’s are noted above.

Loans that defaulted within the twelve month period subsequent to modification were not considered significant for financial reporting purposes.

There were no loans with payment defaults by borrowers experiencing financial difficulty during the quarter ended March 31, 2023 which had material modifications in rate, term or principal forgiveness during the twelve months prior to default.

Note 6 - Leases

15 unchanged sentences

The following table presents the components of lease expense for the periods ended:

Three months ended September 30, Nine months ended September 30,

Three months ended March 31,

(in thousands) 2023 2022

5 unchanged sentences

The following table presents supplemental cash flow information related to leases for the periods ended:

Three months ended September 30, Nine months ended September 30,

Three months ended March 31,

(in thousands) 2023 2022

3 unchanged sentences

The following table presents the weighted average operating lease term and discount rate as of the period ended:

September 30,

Weighted-average remaining lease term (years) 8.3 8.8

Weighted-average discount rate 3.27 % 2.90 %

At September 30, 2022, future expected operating lease payments are as follows:

At March 31, 2023, future expected operating lease payments are as follows:

(in thousands)

2 unchanged sentences

Discount for present value of expected cash flows ( 5,064 )

Lease liability at September 30, 2022 $ 28,717

Lease liability at March 31, 2023 $ 32,228

Note 7 - Deposits

A summary of the balances of deposits follows:

(in thousands) September 30,

(in thousands) March 31,

2023 December 31,

5 unchanged sentences

Total deposits $ 8,025,865 $ 8,329,013

Certificate of deposit balances of zero and $ 1,000,000 from the State of California were included in time certificates, over $250,000, at September 30, 2022 and December 31, 2021, respectively.

The Company participated in a deposit program offered by the State of California whereby the State made deposits at the Company’s request subject to collateral and credit worthiness constraints, generally more favorable than other wholesale funding sources available to the Company.

Overdrawn deposit balances of $ 1,803,000 and $ 2,324,000 were classified as consumer loans at September 30, 2022 and December 31, 2021, respectively.

Overdrawn deposit balances of $ 1.4 million and $ 1.8 million were classified as consumer loans at March 31, 2023 and December 31, 2022, respectively.

Note 8 - Subordinated Debentures

1 unchanged sentence

Coupon Rate (Variable) 3 mo.

LIBOR + September 30, 2022 December 31, 2021

LIBOR + As of March 31, 2023 As of December 31, 2022

Subordinated Debt Series Maturity

16 unchanged sentences

The following table presents a summary of the Bank’s commitments and contingent liabilities:

(in thousands) September 30,

(in thousands) March 31,

2023 December 31,

9 unchanged sentences

Dividends Paid

The Bank paid to the Company cash dividends in the aggregate amounts of $ 16,860,000 and $ 7,058,000 during the three months ended September 30, 2022 and 2021, respectively, and $ 52,365,000 and $ 23,197,000 , respectively, during the equivalent nine month periods then ended.

The Bank paid to the Company cash dividends in the aggregate amounts of $ 18.2 million and $ 7.8 million during the three months ended March 31, 2023 and 2022, respectively.

The Bank is regulated by the FDIC and the DFPI.

1 unchanged sentence

Stock Repurchase Plan

On February 25, 2021 the Board of Directors authorized the repurchase of up to 2,000,000 shares of the Company's common stock (the 2021 Repurchase Plan), which approximated 6.7 % of the shares outstanding as of the approval date.

The actual timing of any share repurchases will be determined by the Company's management and therefore the total value of the shares to be purchased under the 2021 Repurchase Plan is subject to change.

The 2021 Repurchase Plan has no expiration date (in accordance with applicable laws and regulations) and during the three and nine month periods ending September 30, 2022, the Company repurchased 45,132 and 571,881 shares with a market value of $ 2,059,000 and $ 23,809,000 , respectively.

During the three and nine month periods ending September 30, 2021, the Company repurchased 17,963 and 63,317 shares with a market value of $ 730,000 and $ 2,831,000 , respectively.

As of September 30, 2022, approximately 1,364,000 shares remained available for repurchase under the 2021 Repurchase Plan.

In connection with approval of the 2021 Repurchase Plan, the Company’s previous repurchase program adopted on November 12, 2019 (the 2019 Repurchase Plan) was terminated.

Under the 2019 Repurchase Plan, the Company repurchased 223 shares during the nine months ended September 30, 2021.

On February 25, 2021 the Board of Directors authorized the repurchase of up to 2.0 million shares of the Company's common stock (the 2021 Repurchase Plan), which approximated 6.7 % of the shares outstanding as of the approval date.

The actual timing of any share repurchases can be determined by the Company's management and therefore the total value of the shares to be purchased under the 2021 Repurchase Plan is subject to change.

The 2021 Repurchase Plan has no expiration date (in accordance with applicable laws and regulations).

During the three months ended March 31, 2023 and 2022, the Company repurchased 150,000 and zero shares with market values of $ 7.0 million and $ 0 , respectively.

Stock Repurchased Under Equity Compensation Plans

The Company's shareholder-approved equity compensation plans permit award recipients the option tender recently vested shares in lieu of cash for the payment of exercise price, if applicable, and the tax withholding on such shares.

During the three months ended September 30, 2022 and 2021, equity award holders tendered 32,910 and zero shares, respectively, of the Company’s common stock in connection with option exercises.

During the nine months ended September 30, 2022 and 2021, equity award holders tendered 37,929 and zero shares, respectively, of the Company’s common stock in connection with option exercises.

Equity holders also tendered 13,833 and 9,683 shares in connection with the tax withholding requirements of other share based awards during the three months ended September 30, 2022 and 2021, respectively, and 27,840 and 19,413 during the nine months ended September 30, 2022 and 2021, respectively.

In total, shares of the Company's common stock tendered had market values of $ 2,199,000 and $ 384,000 during the quarters ended September 30, 2022 and 2021, respectively, and $ 3,029,000 and $ 836,000 during the year to date periods ended September 30, 2022 and 2021, respectively.

The Company's shareholder-approved equity compensation plans permit employees to tender recently vested shares in lieu of cash for the payment of exercise price, if applicable, and the tax withholding on such shares.

During the three months ended March 31, 2023 and 2022, exercising option holders tendered zero shares, respectively, of the Company’s common stock in connection with option exercises.

Employees also tendered 12,381 and zero shares in connection with the tax withholding requirements of other share based awards during the three months ended March 31, 2023 and 2022, respectively.

In total, shares of the Company's common stock tendered had market values of $ 0.62 million and $ 0 during the quarters ended March 31, 2023 and 2022, respectively.

The tendered shares were retired.

The market value of tendered shares is the last market trade price at closing on the day an option is exercised or the share based award vests.

Stock repurchased under equity incentive plans are not included in the total of stock repurchased under the 2021 or 2019 Stock Repurchase Plans.

The market value of tendered shares is the last market trade price at closing on the day an option is exercised or the other share based award vests.

Stock repurchased under equity incentive plans are not included in the total of stock repurchased under the 2021 Stock Repurchase Plans.

Note 11 - Stock Options and Other Equity-Based Incentive Instruments

3 unchanged sentences

While no new awards can be granted under the 2009 Plan, existing grants continue to be governed by the terms, conditions and procedures set forth in any applicable award agreement.

Stock option activity during the nine months ended September 30, 2022 is summarized in the following table:

Stock option activity during the three months ended March 31, 2023 is summarized in the following table:

of Shares Weighted

4 unchanged sentences

Options forfeited — —

Outstanding at September 30, 2022 19,500 $ 20.90

The following table shows the number, weighted-average exercise price, intrinsic value, and weighted average remaining contractual life of options exercisable, options not yet exercisable and total options outstanding as of September 30, 2022:

Outstanding at March 31, 2023 11,500 $ 21.90

Exercisable Currently Not

3 unchanged sentences

Intrinsic value (in thousands) $ 226 $ — $ 226

Weighted average remaining contractual term (yrs.) 1.1 n/a 1.1

As of September 30, 2022 all options outstanding are fully vested and are expected to be exercised prior to expiration.

The Company did not modify any option grants during 2021 or the nine months ended September 30, 2022.

Activity related to restricted stock unit awards during the nine months ended September 30, 2022 is summarized in the following table:

Weighted average remaining contractual term (yrs.) 1.0 0 years 1.0

As of March 31, 2023 all options outstanding are fully vested and are expected to be exercised prior to expiration.

The Company did not modify any option grants during 2022 or the three months ended March 31, 2023.

Activity related to restricted stock unit awards during the three months ended March 31, 2023 is summarized in the following table:

Vesting RSUs Market Plus

4 unchanged sentences

RSUs forfeited/expired — —

Outstanding at September 30, 2022 113,872 88,135

The 113,872 of service condition vesting RSUs outstanding as of September 30, 2022 include a feature whereby each RSU outstanding is credited with a dividend amount equal to any common stock cash dividend declared and paid, and the credited amount is divided by the closing price of the Company’s stock on the dividend payable date to arrive at an additional amount of RSUs outstanding under the original grant.

Outstanding at March 31, 2023 117,893 114,481

The 117,893 of service condition vesting RSUs outstanding as of March 31, 2023 include a feature whereby each RSU outstanding is credited with a dividend amount equal to any common stock cash dividend declared and paid, and the credited amount is divided by the closing price of the Company’s stock on the dividend payable date to arrive at an additional amount of RSUs outstanding under the original grant.

The dividend credits follow the same vesting requirements as the RSU awards and are not considered participating securities.

The 113,872 of service condition vesting RSUs outstanding as of September 30, 2022 are expected to vest, and be released, on a weighted-average basis, over the next 1.9 years.

The Company expects to recognize $ 3,348,000 of pre-tax compensation costs related to these service condition vesting RSUs between September 30, 2022 and their vesting dates.

The Company did not modify any service condition vesting RSUs during 2021 or during the nine months ended September 30, 2022.

The 88,135 of market plus service condition vesting RSUs outstanding as of September 30, 2022 are expected to vest, and be released, on a weighted-average basis, over the next 1.8 years.

The Company expects to recognize $ 1,309,000 of pre-tax compensation costs related to these RSUs between September 30, 2022 and their vesting dates.

As of September 30, 2022, the number of market plus service condition vesting RSUs outstanding that will actually vest, and be released, may be reduced to zero or increased to 132,203 depending on the total return of the Company’s common stock versus the total return of an index of bank stocks from the grant date to the vesting date.

The Company did not modify any market plus service condition vesting RSUs during 2021 or during the nine months ended September 30, 2022.

The 117,893 of service condition vesting RSUs outstanding as of March 31, 2023 are expected to vest, and be released, on a weighted-average basis, over the next 2.1 years.

The Company expects to recognize $ 3.1 million of pre-tax compensation costs related to these service condition vesting RSUs between March 31, 2023 and their vesting dates.

The Company did not modify any service condition vesting RSUs during 2022 or during the three months ended March 31, 2023.

The 114,481 of market plus service condition vesting RSUs outstanding as of March 31, 2023 are expected to vest, and be released, on a weighted-average basis, over the next 2.1 years.

The Company expects to recognize $ 1.8 million of pre-tax compensation costs related to these RSUs between March 31, 2023 and their vesting dates.

As of March 31, 2023, the number of market plus service condition vesting

RSUs outstanding that will actually vest, and be released, may be reduced to zero or increased to 171,722 depending on the total return of the Company’s common stock versus the total return of an index of bank stocks from the grant date to the vesting date.

The Company did not modify any market plus service condition vesting RSUs during 2022 or during the three months ended March 31, 2023 .

Note 12 - Non-interest Income and Expense

1 unchanged sentence

Three months ended

September 30, Nine months ended

September 30,

(in thousands) 2023 2022

10 unchanged sentences

Sale of customer checks 288 104

Gain on sale of investment securities — — — —

Loss on marketable equity securities ( 115 ) ( 14 ) ( 346 ) ( 59 )

Loss on sale of investment securities ( 164 ) —

Gain (loss) on marketable equity securities 42 ( 137 )

Other 232 504

3 unchanged sentences

Three months ended

September 30, Nine months ended

September 30,

(in thousands) 2023 2022

14 unchanged sentences

Postage 299 228

Operational losses 492 244 765 665

Operational (gain) losses 435 ( 183 )

Courier service 339 414

Gain on sale or acquisition of foreclosed assets ( 148 ) ( 144 ) ( 246 ) ( 210 )

Loss (gain) on disposal of fixed assets 4 ( 19 ) ( 1,069 ) ( 445 )

Gain on disposal of fixed assets — ( 1,078 )

Other miscellaneous expense 3,483 2,485

6 unchanged sentences

Earnings per share have been computed based on the following:

Three months ended September 30,

(in thousands) 2022 2021

Net income $ 37,338 $ 27,422

Average number of common shares outstanding 33,348 29,714

Effect of dilutive stock options and restricted stock 115 137

Average number of common shares outstanding used to calculate diluted earnings per share 33,463 29,851

Options excluded from diluted earnings per share because of their antidilutive effect — —

Nine months ended September 30,

Three months ended March 31,

(in thousands) 2023 2022

8 unchanged sentences

The components of other comprehensive income (loss) and related tax effects are as follows:

Three months ended September 30, Nine months ended

September 30, 2022

Three months ended March 31,

(in thousands) 2023 2022

Unrealized holding losses on available for sale securities before reclassifications $ ( 109,341 ) $ ( 6,304 ) $ ( 317,659 ) $ ( 11,249 )

Unrealized holding gains (losses) on available for sale securities before reclassifications $ 34,540 $ ( 111,302 )

Amounts reclassified out of AOCI:

Realized gains on debt securities — — — —

Unrealized holding losses on available for sale securities after reclassifications ( 109,341 ) ( 6,304 ) ( 317,659 ) ( 11,249 )

Realized loss on debt securities 164 —

Unrealized holding gains (losses) on available for sale securities after reclassifications 34,704 ( 111,302 )

Tax effect ( 10,260 ) 32,905

Unrealized holding losses on available for sale securities, net of tax ( 76,740 ) ( 4,440 ) ( 223,748 ) ( 7,924 )

Unrealized holding gains (losses) on available for sale securities, net of tax 24,444 ( 78,397 )

Change in unfunded status of the supplemental retirement plans before reclassifications 114 63

9 unchanged sentences

Change in joint beneficiary agreement liability before reclassifications, net of tax — —

Total other comprehensive loss $ ( 76,740 ) $ ( 4,440 ) $ ( 223,690 ) $ ( 8,553 )

The components of accumulated other comprehensive (loss) income, included in shareholders’ equity, are as follows:

(in thousands) September 30,

Total other comprehensive income (loss) $ 24,444 $ ( 78,339 )

The components of accumulated other comprehensive loss, included in shareholders’ equity, are as follows:

(in thousands) March 31,

2023 December 31,

Net unrealized loss on available for sale securities $ ( 318,051 ) $ ( 392 )

Net unrealized gain on available for sale securities $ ( 255,845 ) $ ( 290,549 )

Tax effect 75,637 85,897

Unrealized holding loss on available for sale securities, net of tax ( 224,024 ) ( 276 )

Unrealized holding gain on available for sale securities, net of tax ( 180,208 ) ( 204,652 )

Unfunded status of the supplemental retirement plans 13,901 13,901

4 unchanged sentences

Joint beneficiary agreement liability, net of tax 956 956

Accumulated other comprehensive (loss) income $ ( 222,709 ) $ 981

Accumulated other comprehensive loss $ ( 169,461 ) $ ( 193,905 )

Note 15 - Fair Value Measurement

29 unchanged sentences

When the fair value of the collateral is based on an observable market price or a current appraised value which uses substantially observable data, the Company records the loan as nonrecurring Level 2.

When an appraised value is not available or management determines the fair value of the collateral is further

impaired below the appraised value, or the appraised value contains a significant unobservable assumption, such as deviations from comparable sales, and there is no observable market price, the Company records the loan as nonrecurring Level 3.

When an appraised value is not available or management determines the fair value of the collateral is further impaired below the appraised value, or the appraised value contains a significant unobservable assumption, such as deviations from

comparable sales, and there is no observable market price, the Company records the loan as nonrecurring Level 3.

Foreclosed assets - Foreclosed assets include assets acquired through, or in lieu of, loan foreclosure.

9 unchanged sentences

The table below presents the recorded amount of assets and liabilities measured at fair value on a recurring basis (in thousands):

Fair value at September 30, 2022 Total Level 1 Level 2 Level 3

Fair value at March 31, 2023 Total Level 1 Level 2 Level 3

Marketable equity securities $ 2,640 $ 2,640

5 unchanged sentences

Asset backed securities 427,364 427,364

Non-agency collateralized mortgage obligations 347,568 — 347,568 —

Non-agency mortgage backed securities 335,375 335,375

Loans held for sale 226 226

9 unchanged sentences

Asset backed securities 439,767 — 439,767 —

Non-agency collateralized mortgage obligations 341,997 — 341,997 —

Non-agency mortgage backed securities 340,946 340,946

Loans held for sale 1,846 — 1,846 —

2 unchanged sentences

Transfers between levels of the fair value hierarchy are recognized on the actual date of the event or circumstances that caused the transfer, which generally corresponds with the Company’s quarterly valuation process.

There were no transfers between any levels during the nine months ended September 30, 2022, or the year ended December 31, 2021.

There were no transfers between any levels during the three months ended March 31, 2023 or the year ended December 31, 2022.

The following table provides a reconciliation of assets and liabilities measured at fair value using significant unobservable inputs (Level 3) on a recurring basis during the time periods indicated.

Had there been any transfer into or out of Level 3 during the time periods indicated, the amount included in the “Transfers into (out of) Level 3” column would represent the beginning balance of an item in the period (interim quarter) during which it was transferred (in thousands):

Three months ended September 30, Beginning

Balance Transfers

into (out of)

Level 3 Change

in Earnings Issuances Ending

Mortgage servicing rights $ 6,667 — $ 33 $ 98 $ 6,798

Mortgage servicing rights $ 5,603 — $ ( 233 ) $ 366 $ 5,736

Nine months ended September 30, Beginning

Three months ended March 31, Beginning

Balance Transfers

4 unchanged sentences

Mortgage servicing rights $ 5,874 — $ 274 $ 257 $ 6,405

Three months ended March 31,

The key unobservable inputs used in determining the fair value of mortgage servicing rights are mortgage prepayment speeds and the discount rate used to discount cash projected cash flows.

1 unchanged sentence

Conversely, a decrease in the mortgage prepayment speed and discount rate will result in a positive fair value adjustment (and increase in the fair value measurement).

The following table presents quantitative information about recurring Level 3 fair value measurements at September 30, 2022 and December 31, 2021:

As of September 30, 2022:

The following table presents quantitative information about recurring Level 3 fair value measurements at March 31, 2023 and December 31, 2022:

As of March 31, 2023:

(in thousands) Valuation

6 unchanged sentences

Discount rate 10 % - 14 %;

The tables below present the recorded investment in assets and liabilities measured at fair value on a nonrecurring basis, as of the dates indicated (in thousands):

September 30, 2022 Total Level 1 Level 2 Level 3 Total Gains (Losses)

The tables below present the recorded investment in assets and liabilities measured at fair value on a nonrecurring basis, as of the dates indicated, that had a write-down or an additional allowance provided during the periods indicated (in thousands):

March 31, 2023 Total Level 1 Level 2 Level 3

Individually evaluated loans $ 1,223 — — $ 1,223

December 31, 2022 Total Level 1 Level 2 Level 3

Individually evaluated loans $ 5,719 — — $ 5,719

Foreclosed assets 311 — — 311

Total assets measured at fair value $ 6,030 — — $ 6,030

December 31, 2021 Total Level 1 Level 2 Level 3 Total Losses

Individually evaluated loans $ 3,683 — — $ 3,683 $ ( 1,105 )

September 30, 2021 Total Level 1 Level 2 Level 3 Total Losses

The tables below present the losses resulting from non-recurring fair value adjustments of assets and liabilities for the periods indicated (in thousands):

Three months ended March 31,

Individually evaluated loans $ ( 277 ) $ ( 615 )

Foreclosed assets — ( 294 )

Total assets measured at fair value $ 3,389 — — $ 3,389 $ ( 1,583 )

Total losses from non-recurring measurements $ ( 277 ) $ ( 909 )

The individually evaluated loan amounts above represent collateral dependent loans that have been adjusted to fair value.

16 unchanged sentences

Under certain circumstances, management discounts are applied based on specific characteristics of an individual property.

The following table presents quantitative information about Level 3 fair value measurements for financial instruments measured at fair value on a nonrecurring basis at September 30, 2022:

September 30, 2022 Fair Value

The following table presents quantitative information about Level 3 fair value measurements for financial instruments measured at fair value on a nonrecurring basis at March 31, 2023:

March 31, 2023 Fair Value

(in thousands) Valuation

5 unchanged sentences

Capitalization rate Not meaningful

Foreclosed assets (Residential real estate) $ 770 Sales comparison

approach Adjustment for differences between

comparable sales Not meaningful

The following table presents quantitative information about Level 3 fair value measurements for financial instruments measured at fair value on a nonrecurring basis at December 31, 2022:

7 unchanged sentences

Capitalization rate Not meaningful

Foreclosed assets (Residential real estate) $ 311 Sales comparison

approach Adjustment for differences between

comparable sales Not meaningful

Fair values for financial instruments are management’s estimates of the values at which the instruments could be exchanged in a transaction between willing parties.

3 unchanged sentences

Further, the tax ramifications related to the realization of the unrealized gains and losses can have a significant effect on the fair value estimates and have not been considered in any of these estimates.

September 30, 2022 December 31, 2021

March 31, 2023 December 31, 2022

(in thousands) Carrying

28 unchanged sentences

Quantitative measures established by regulation to ensure capital adequacy require the Company to maintain minimum amounts and ratios (set forth in the table below) of total, Tier 1, and common equity Tier 1 capital to risk-weighted assets, and of Tier 1 capital to average assets.

The following tables present actual and required capital ratios as of September 30, 2022 and December 31, 2021 for the Company and the Bank under applicable Basel III Capital Rules.

The minimum capital amounts presented include the minimum required capital levels as of September 30, 2022 and December 31, 2021 based on the then phased-in provisions of the Basel III Capital Rules.

The following tables present actual and required capital ratios as of March 31, 2023 and December 31, 2022 for the Company and the Bank under applicable Basel III Capital Rules.

The minimum capital amounts presented include the minimum required capital levels as of March 31, 2023 and December 31, 2022 based on the then phased-in provisions of the Basel III Capital Rules.

Capital levels required to be considered well capitalized are based upon prompt corrective action regulations, as amended to reflect the changes under the Basel III Capital Rules.

1 unchanged sentence

Considered Well

As of September 30, 2022:

As of March 31, 2023:

Amount Ratio Amount Ratio Amount Ratio

29 unchanged sentences

Tri Counties Bank $ 1,009,577 10.51 % $ 384,146 4.00 % $ 480,183 5.00 %

As of September 30, 2022 and December 31, 2021, capital levels at the Company and the Bank exceed all capital adequacy requirements under the Basel III Capital Rules.

Also, at September 30, 2022 and December 31, 2021, the Bank’s capital levels exceeded the minimum amounts necessary to be considered well capitalized under the current regulatory framework for prompt corrective action.

As of March 31, 2023 and December 31, 2022, capital levels at the Company and the Bank exceed all capital adequacy requirements under the Basel III Capital Rules.

Also, at March 31, 2023 and December 31, 2022, the Bank’s capital levels exceeded the minimum amounts necessary to be considered well capitalized under the current regulatory framework for prompt corrective action.

The Basel III Capital Rules require for all banking organizations to maintain a capital conservation buffer above the minimum risk-based capital requirements in order to avoid certain limitations on capital distributions, stock repurchases and discretionary bonus payments to executive officers.

The capital conservation buffer is exclusively composed of common equity tier 1 capital, and it applies to each of the risk-based capital ratios but not the leverage ratio.

At September 30, 2022, the Company and the Bank are in compliance with the capital conservation buffer requirement.

At March 31, 2023, the Company and the Bank are in compliance with the capital conservation buffer requirement.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements